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Easy Ways To Maximize Your Tax Savings

Dec 01, 2021

The standard policy of the government is to collect 30% tax from the total income above a certain level. But the general trend of any investor is an aversion towards paying taxes. After fulfilling all the personal financial requirements, income tax creates an additional liability and load. But there are certain factors which, when carefully incorporated while tax claims, can reduce the burden to a considerable extent. 

Investing in tools under Section 80C

Section 80C of the Income Tax Act is the most common tax-saving tool. It reduces the tax burden up to INR 1,50,000. Some of the most popular investment options under this redemption are Term Life Insurance,PPF, NPS, ULIP, etc.

Health insurance coverage

The premium paid for health insurance for self and family falls under the purview of tax redemption under Section 80D of the Income Tax Act. The tax exemption limit is up to INR 25,000 for the general investors. For a senior citizen(who is also a policyholder), this limit is INR 50,000. In case of health policies for dependent parents, the tax benefit limit is INR 25,000, if the age of the parents is below 60 years; if it is above 60 years, then this limit is INR 50,000.

Educational loan

The income tax laws of the country offer tax redemption facilities on the interest payable for educational loans, provided the loans are taken from any recognised financial institution for a valid course. The loan taken should fund the education of the taxpayer or the spouse or children or for any student of whom, the concerned taxpayer is the legal guardian. The tax deduction under this head is available for up to 8 years or till the total interest is repaid, whichever happens earlier.

Donations

Donating for charitable causes is eligible for tax redemption benefits. The Income Tax Act enlists tax redemptions for several types of charitable purposes. The tax benefits can range up to 50% to 100% with or without restrictions as per the terms of Section 80G of the Income Tax Act. One more additional factor in this regard is that donations exceeding the mark of INR 2,000 must be either in cheque or draft,if it is done in cash, then the tax benefit will not be applicable.

Buying home

Buying a new home is eligible for tax redemption benefits. Based on the terms and conditions, the interest paid for a home loan is eligible for tax redemption up to INR 2,00,000 under Section24 of the Income Tax Act. Moreover, if this is the first home investment, a claim of additional INR 50,000 on the home loan interest can be claimed under Section 80EE of the Income Tax Act.

Employer reimbursements

If any individual is a salaried taxpayer, then claims can be made to the employer for reimbursing certain expenses up to a certain limit.

House rent allowance

House Rent Allowance is normally a part of the salary. This forms a part of the deduction. The amount of deduction is based on certain circumstances: 

  • The actual amount of house rent allowance
  • 50% of the salary (basic+DA) in case of metro cities and 40% otherwise
  • Excess of the yearly rent payable above 10% of the salary(basic+DA)

If the employer does not provide a house rent allowance and the taxpayer is living in rented accommodation, then alternative tax benefits can be claimed under Section 80GG of the Income Tax Act.

Medical reimbursement

If the employer reimburses any medical expenses caused for treating self or family, then that can be treated as an exemption on submitting the bills to the relative authorities. The maximum limit is INR 15,000 for tax redemption that can be claimed only through the employer.

Transport allowance

If the employer offers a transport allowance, then a tax exemption of up to INR 1,600 p.m. can be claimed. However, the current practice is to deduct INR 40,000 from the total salary in place of transport allowance and medical reimbursements. 

Summary

Keeping a track of income and expenses is the key concept of effective money management. Maximum utilisation of the tax-saving investment tools will maximise the tax savings. Careful consideration of all the relevant factors is the secret to win the game. 

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